A proposal to restart a paper mill in Nova Scotia with significant subsidies from the provincial government could negatively affect Maine’s paper industry, according to paper industry observers. But U.S. paper companies do have options to protect their interests, including seeking tariffs against government subsidized imports.

At issue is a paper mill in Port Hawkesbury, Nova Scotia, that until last year was producing supercalendered paper for glossy magazines and catalogs. Its owner, NewPage, closed the mill last year because it was unprofitable. However, a new buyer has emerged that wants to reopen the mill, with some generous help from the Nova Scotian government, including a $125 million package of incentives and a deal that would lower the mill’s electricity bill. The entire deal could hinge on a ruling on a tax break request.

Heavily subsidized imports of supercalendered paper, which several large mills in Maine produce, could have a negative impact on Maine’s paper industry, according to John Williams, president of the Maine Pulp and Paper Association.

The market for supercalendered paper is not growing, Williams said, so in the long term any new supplier will create more competition for an already tight market. “If government subsidies skew it so [the Port Hawkesbury mill is] able to make a profit at lower cost, that can hurt our mills,” he said.

Mills in Maine with supercalendered machines include the paper mill in Madison, which is owned by UPM, and the Verso mills in Jay and Bucksport. Great Northern Paper’s mill in Millinocket also has a supercalendered machine, but it hasn’t been used since 2008. When Cate Street Capital last year purchased the Millinocket mill from Brookfield, it said it would consider restarting that machine only if it made economic sense.

If Pacific West opens the Nova Scotia mill, chances of GNP ever restarting that supercalendered paper machine will be greatly reduced, according to Bob Rice, a professor of wood science at the University of Maine.

Richard Cyr, GNP’s president and CEO, was not available for comment. GNP earlier this month announced plans to restart a second paper machine at its East Millinocket mill.

Rice said he doesn’t think the Nova Scotia mill would have “a huge impact” on Maine’s overall paper industry, but it certainly wouldn’t go unnoticed.

“Any time somebody appears at the door with heavily subsidized sheets of paper, it’s not good for us,” Rice said.

As for UPM’s paper mill in Madison, which makes the same grade of supercalendered paper that the Nova Scotia mill would produce, Rice said he wouldn’t worry about that mill. He said the New York Times Co. is a partial owner of that mill and so is a captive customer for the paper, which it uses to print the New York Times Sunday magazine. Joe Maher, a UPM spokesman, could not be reached for comment on the Madison mill’s operations.

Verso Paper is “obviously watching it to see what happens,” said Bill Cohen, a Verso spokesman.

The effect on Verso’s Jay and Bucksport mills, which employ nearly 1,500 people, if the Nova Scotia mill were to restart is unknown, Cohen said. But theoretically any manufacturer will have a problem when more product is introduced into an already crowded market. “Economic theory would say that’s not a good thing,” Cohen said.

Cohen said the individual mills wouldn’t have a say in the pursuit of any type of tariffs on the imports, but that Canadian subsidies on wood and electricity have been on the company’s radar for the seven years he has been at the company.

At the Maine Pulp and Paper Association, Williams said he doesn’t blame Nova Scotia or the Canadian government for wanting to get this mill up and running again, “but it certainly can be a threat,” he said.

There is a process paper manufacturers could use to fight back against subsidized imports. Companies have the ability to petition the U.S. International Trade Commission to impose tariffs on imports that are subsidized by foreign governments. In 2010, the International Trade Commission voted to impose tariffs on cheap paper imports from China and Indonesia. Both Sappi Fine Paper, which owns the paper mill in Westbrook, and NewPage, which owns the mill in Rumford, were parties to that complaint.

It’s too early to tell whether any paper companies with mills in Maine would pursue that route if the Nova Scotia mill were to open with hefty Canadian subsidies, but if they did, Rep. Mike Michaud already has offered his support.

Michaud, who testified before the International Trade Commission in support of placing tariffs on the subsidized paper imports from China and Indonesia, issued a statement Monday in response to the news about the potential restart of the Nova Scotia mill.

“I’ve made it a top priority to promote our domestic manufacturing sector, and I’m concerned that this action in Canada could damage our paper industry at a time we can least afford it,” Michaud said. “I’ve supported our paper industry when they’ve pursued cases against unfair foreign subsidization and would do so again in this case if Maine’s mills determined it was necessary. Our system of international trade only works if our trading partners play by the rules.”

While not going as far as committing to support a petition in front of the International Trade Commission, Sen. Olympia Snowe also said she considers helping Maine’s paper mills and workers a “high priority.”

“Maine’s historic pulp and paper industry remains a cornerstone of our state’s economy, and beyond simply preserving it, we must continue to work hand-in-glove with the mills to ensure they remain internationally competitive in a global economy,” Snowe said. “I recognize that the forest products industry is extremely competitive and the forthcoming expansion of supply with the reopening of this mill in Nova Scotia is of some concern, but I will always stand with the thousands of Mainers continuing in the proud tradition of previous generations who have made Maine’s pulp and paper industry a world leader.”

“Maine’s paper industry is critical to our state’s economy. Senator Collins strongly believes that American workers can compete against the best in the world, but it should be on a fair and level playing field,” said Kevin Kelley, spokesman for Sen. Susan Collins, R-Maine.

Williams said in his 10 years at the Maine Pulp and Paper Association he isn’t aware of any initiatives to place tariffs on cheap Canadian paper imports.

Last week, Darrell Dexter, premier of Nova Scotia, unveiled a package of incentives worth nearly $125 million to help British Columbia-based Pacific West Commercial Corp. purchase and restart the Port Hawkesbury mill. Dexter’s announcement came on the heels of news that Nova Scotia’s Utility and Review Board had approved a special power rate deal with Nova Scotia Power, according to The Canadian Press.

Since the provincial government has over the past year spent more than $12 million to keep the mill ready for a quick start, the incentive package would bring the total the provincial government has invested in getting the mill back up and running, and re-employing nearly 300 people, to nearly $140 million, according to the Chronicle Herald in Halifax.

The government funding is a “critical” step toward restarting one of the mill’s two papermaking machines, a Pacific West spokesman told The Canadian Press.

However, one hurdle remains before Pacific West restarts the mill. The Canada Revenue Agency is considering a request by the company to lower its municipal taxes from $2.6 million to $500,000 annually, according to The Canadian Press. If its request is denied, it’s unclear whether Pacific West would continue with the mill purchase and relaunch. It’s not known when the Canada Revenue Agency will make its decision, according to The Canadian Press.